If you’ve heard about bitcoin, you probably already know that to acquire some, you either need to purchase it from someone or mine them yourself. The concept of “creating” bitcoins from your computer by providing security to the network through the conversion of electricity into hash rate has become a booming industry over the last decade. We’ve gone from people mining in their garages to multi-billion dollar publicly traded companies with cross-border operations.
It’s common knowledge that it has become difficult for individual miners to access the best machines and the cheapest electricity rates. Many feel the golden age of retail mining is over. While the home miner is up against the mega-corporations, it doesn’t mean they can’t float a sucker punch or two in the game of proof of work.
Bitcoin farms that operate at scale use their financing and scale as an advantage to maximise their returns, but that also leaves them exposed to certain risks that the nimble home miner breezes past with ease.
The battle for providing hash power isn’t going anywhere, and if you’re interested in joining the fight, here are a few reasons why home mining may or may not be for you.
1. Additional income
Many people who become interested in bitcoin mining at the start are looking for ways to generate an income, and can bitcoin do that for you? Yes, it can generate bitcoin for you, that’s a given, but can it be profitable?
That is where the dependents come in. It depends on several factors, such as
- Type of machine
- The lifespan of the machine
- Cost of electricity
- Cost to acquire machines
- How long is your time horizon
- The market cycle we’re in
Are bitcoin miners money printing machines? Absolutely not! This is a highly capital-intensive, cut-throat industry and like any business, there is risk involved, and you need to know how to manage your exposure to it.
You will have to do your research and calculate based on the amount of electricity and machines you can afford and figure out what your break-even and profitability ranges are and timelines are and if they are attractive to you versus other investment opportunities or simply buying bitcoin outright.
If you think you will be sitting on your arse in your bitcoin miner heated jacuzzi as the sats roll in, you are sadly mistaken; this is not a get-rich-quick scheme, nor is it a “passive income” opportunity.
2. Acquire KYC-free bitcoin
Home miners can range from hobbyists and enthusiasts to serious guerrilla mining operations in the backyard or garage, but regardless of the size or intent, home miners all value the same incentive, their ability to privately acquire more bitcoin.
Instead of purchasing bitcoin at market value on centralised exchanges, this category of miners prefers to avoid any form of KYC or identity verification information connected to their stacks of sats. Mining bitcoin naturally comes at a cost but what you gain in privacy and security is often a premium many are willing to pay.
As a miner, you’re acquiring virgin bitcoin with no transaction history and these “KYC-free sats” give you a chance to build up a kitty of bitcoin that no one authority knows that you own.
3. Optimise your home energy generation
If you’ve gone completely off the grid or have a hybrid solar solution at home, you’re probably not using it to its full capacity. Once you start generating electricity, you’ll soon realise that you’re hardly maxing out your system and that results in wastage. Every day will be different there are so many variables involved. Some days have more sun than others, and some days you use more electricity than others.
To regulate the mismatch of power generation and power usage in these solar systems, we have batteries that can store excess capacity for later use. Still, they have a limited capacity, which sees a lot of energy production go to waste.
Bitcoin mining at home on solar offers you an energy-hungry battery that can be turned on to smooth out the oversupply of energy when it’s not being used and give you an additional incentive to be conservative with your energy when you do tap into that energy.
While you won’t be making piles of money, you do have a sink to keep your system running at its peak, which can help with a reduction in maintenance costs. Still, you’re also generating an income to cover the initial investment you made in the energy generation system.
4. Avoid regulatory risk
The legality of bitcoin mining depends entirely on your geographic location, and as governments feel threatened by capital flight, they will look upon bitcoin in unfavourable terms. We’ve already seen a mass exodus of miners from China following their mining ban, and they are not the only place to take an adversarial stance against bitcoin mining.
Bitcoin ownership and mining are legal in more countries than not, but since this status is at the whim of political pressure, it can change very quickly. Some examples of places where it was illegal, according to a 2018 report, were Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and Pakistan. Since then, a few more countries have joined the anti-mining party, including Bangladesh, China, Dominican Republic, North Macedonia, Qatar, and Vietnam.
While large formalised operations wouldn’t be able to get away with mining in the country, the home miner can easily take advantage as all they need is an available electricity socket, which can be from the grid, a generator or via their own wind, hydro or solar power.
Suppose governments were ever going to get to a point where they could monitor your electricity usage and go door-to-door looking for miners. A home miner could easily switch off, hide operations or even pack them up and move them elsewhere.
5. Avoid operational risk
Hosted mining facilities offer the retail miner the chance to place their ASIC in their facilities with access to cheaper electricity prices and the best cooling systems and technicians to work on it. The appeal of this operation is that it allows you to mine without all the hands-on work and complexity involved, but it’s not without its risk.
In addition to regulatory targets, large-scale mining facilities face financial risk, they have a debt to pay, salaries and expenses to service, and shareholders to keep happy and hope to build a bitcoin treasury in the process. Having to juggle these operations, all reliant on the price of bitcoin, can leave you in a precarious position should the price go against you or remain suppressed for a more extended period thane expected.
In the last decade, plenty of large-scale private and public miners have faced financial difficulties, showcasing how real this risk is and how it will never disappear. Instead of having to deal with a company, home mining allows you to take complete control of the process and have zero trust assumptions involved. As we say in bitcoin, not your garage, not your ASICS.
6. Diversify your income
Perhaps you’re working full time, or you have a business earning fiat currency, or you’re investing and feel you already have enough exposure to certain asset classes. Now you want an active strategy to earn an additional income in an asset that isn’t correlated with your current bet; then bitcoin mining can be an option.
You can either mine and keep the bitcoin or sell it for fiat.
In the case of bitcoin income, perhaps you’re providing liquidity to JoinMarkets, and now those funds are locked up and earning fees helping support CoinJoins; perhaps you’re opening up Lightning channels and earning routing fees.
Having a bitcoin miner churn out some additional sats that you can either keep in cold storage or add to your risk on bitcoin earning strategy is a complementary activity. As you earn more bitcoin through your mining, you can open up new Lightning channels or create larger ones and look to earn additional bitcoin.
7. Ideological miners
Regardless of the outputs from mining in the form of noise, heat or money, there will always be miners of last resort. This is a subset of miners who participates in the sector primarily (or solely) because they believe in the importance and future potential of the Bitcoin network and the commitment to decentralisation. This type of miner is rare, but they are nearly impossible to squeeze out of the market no matter how low the bitcoin price drops or how adversarial market conditions become.
Idioglical miners were much more common in bitcoin’s early days when mining was much less resource intensive and profitable, but it doesn’t mean it will ever go extinct. Depending on how energy markets change, how government regulation changes and how chip manufacturing and supply change, large operations can be affected and shut down.
That means there will always be room for this honey badger miner.
8. A healthy hobby
Mining bitcoin as a hobby is not uncommon; At the same time, many hobbyists hope to be profitable; they enjoy working with the ASIC, learning more about the mining process, engaging with other miners online and have fostered their community. While some will join mining pools to ensure they generate a regular income for their hash power, other miners are willing to go solo and play the odds.
Often referred to as “lottery miners”, they hash on their own, rarely earn block rewards, and hope for the unlikely occurrence that their machines solve a new block and claim the entire block reward. Of course, this strategy is not profitable or scalable, but there is a sense of pride involved, and if you do strike it lucky and bag an entire block on your own, you sure will profit handsomely.
9. Opportunistic mining
There is a common misconception that you need to be online 24/7, burning electricity at every moment to try and churn out hashes and get satoshis in return, but that’s not true. Bitcoin mining is a highly flexible market, and people will participate at different times and due to different conditions.
Mining in a bull market, while an exciting time, comes with greater competition. As the price of bitcoin climbs, so does the number of mining rigs plugged into the network. Mining hence becomes more competitive, yet the amount of bitcoin available to mine remains unchanged. Thus, while a miner’s revenue may be going up in dollar terms as the price of bitcoin appreciates, they will receive less bitcoin for their efforts due to more miners being incentivised to join the network. This will not matter to miners focused solely on profitability, as revenues in dollar terms will remain high as long as the price of bitcoin rises.
Mining ventures see their profits rise substantially during bull markets, and with that comes the decision of whether to expand operations or not. Launching new miners during a bull market can open an operation up to additional risk during a bear market.
Those miners, likely purchased at an elevated rig price, can become difficult to pay off in a bear market where rig prices plummet, and revenues decline. In many cases, a miscalculation in deciding to expand at the wrong point in a cycle can see you overexposed and even end up bankrupt. When participants with large operations have to reduce operations or close up shop, that is an opportunity for home miners.
In bear markets, it can also be a great time to acquire mining equipment as bankruptcy proceedings flood the market with machines, and we see fire sales on mining gear.
The point of telling you all this is you can pick and choose your battles; bitcoin isn’t going away, so you can play the long game.
- If you do have access to cheap or cheaper electricity than normal, why not take advantage of it by switching on your miner?
- If you see miners capitulating and the hash rate is dropping, why not switch on your miner and fill in the gap? Switch on your miner.
- If you see tighter regulations on large-scale mining that make them less competitive, and you can come in and take some of the market share, switch on your miner.
- If you see ASIC manufacturing halting for a tie period due to supply issues, you know there won’t be new superior competition for a while, so switch on your miner.
- If you think the market is pricing bitcoin incorrectly, and you can acquire cheap sats compared to your energy cost or buy directly from the market, switch on your miner.
You don’t need to have your miner on at all times, but it does pay to have one to fall back on should there be an opportunity to score some sats for your efforts.
Is it time to mine?
The bitcoin economy is still in its formative stages, with a lot of it being misunderstood, particularly the mining sector. As more CAPEX is thrown at industrial miners, it’s easy to feel discouraged and think there is no point in mining at home, and for most, they probably will stop right there.
But by understanding many of the diverse reasons why people choose to mine, hopefully, more people will be interested in taking part in the bitcoin network need for security on a part-time or full-time basis. Everyone can take part in mining bitcoin, but everyone doesn’t have the same reason for mining.
If you find a compelling reason that works within your budget, let’s get hashing.
Are you investing in the bitcoin ecosystem?
Do you invest in bitcoin mining? Are you considering bitcoin mining? Have you been mining for some time? Let us know in the comments down below.
